Affordable homes in Singapore? Looking beyond cooling measures.

The 8th round of property cooling measures announced by MAS on 28th June is intended to be a long-term one, put in place not just to tackle the current market situation, but to maintain prudent credit controls in the years to come.

I think at this point it would be timely to remind ourselves why Singapore’s government is so fixated on avoiding a property bubble. Sure, housing affordability is always of certain political significance in any country, but I struggle to think of any other nation where the government is quite so heavily involved in the property market. Having chosen to take on the mantle of providing public housing to over 80% of the population for all these decades and being so closely involved in the control of the private housing market too, it is unsurprising that the electorate considers the health of the housing market a key element when assessing their overall satisfaction with the ruling party’s performance.

As Minister Khaw has pointed out previously, he faces the delicate task of balancing the public’s call for affordable housing, with the need to maintain stable property prices to protect the interests of many Singaporeans whose homes and real estate holdings represent the bulk of their total net assets. Thus in the government’s efforts to provide affordable public housing, they must at the same time avoid a property crash at all costs.

Bending over backwards to balance

The main focus thus far has been on beefing up rules and regulations: hiking stamp duties imposed on buyers and sellers, and reducing the availability of financing by lowering loan-to-value ceilings, restricting loan tenures, and general tightening of credit controls. But as any honest draftsman or legislator would be able to tell you, it is near impossible to draft a completely watertight book of rules without becoming unwieldy and impractical to implement. And in any case, is there substantive proof that heavy regulatory control is better at maintaining a stable market than free market forces?

An increasingly complex, convoluted series of rules and regulations governing the property market certainly poses a challenge for layperson consumers seeking to purchase or deal with their property holdings. I believe it would be helpful to take a look at trends that have been taking place both in Singapore and other cities for alternative means of coping with rising home prices.

Smaller homes

Artwork courtesy of Ralph Hagen

The shoebox phenomenon initially caused a huge ruckus here in Singapore, eventually leading the government to impose a restriction on number of units for condominiums built outside the central district, effective from November 2012.

The steady downward march of average home sizes is likely to continue in the light of the tightened loan controls, as developers heed consumers’ calls for affordable homes, and the popularity of homes within the $1.5M quantum.

Singapore is certainly not alone in this respect. Even countries with considerably more land, such as Britain and America have seen a steady decline in home sizes, part due to smaller households but mostly due to pricing pressures and growing demand for more affordable homes.

Shorter Leasehold Tenures

This has already been in practice in Singapore’s industrial sector for some time: to keep prices affordable for small-medium enterprises, industrial land leases have been reduced to as little as 30 year tenures. More recently, in November 2012, our Urban Redevelopment Authority successfully closed a tender exercise for a 60-year leasehold residential plot at Jalan Jurong Kechil, attracting 23 interested developers to submit bids.

It would not be inconceivable that with prices of new 99-year leasehold condominiums in the suburbs exceeding $1,500 per square foot, developers may find a ready market for more affordable, shorter lease tenures.

Higher-rise homes

The sky’s the limit?

When land prices are escalating and end-users’ budgets are stretched, it would seem that the only logical alternative would be to build skyward. Whilst Singapore is rather built-up as it is, we are still a considerable way to go from the likes of Hong Kong’s 70-floor apartment blocks. I don’t expect any drastic adjustments to plot ratios come this year’s revision to our nation’s Master Plan (2008) given the government’s present focus on decentralization, however it is certainly a very real possibility in the years to come that current plot ratios will eventually be adjusted to allow for higher density homes to be built.

Lower ownership levels

Despite having some of the most expensive housing in the world, Singapore also enjoys one of the highest rates of home ownership. But with housing prices slowly but surely inching beyond the reach of ordinary home seekers, there may come a time where the rental market in Singapore more closely resembles countries such as Germany or America, where natives themselves account for a sizeable proportion of the country’s tenant base.

The abovementioned trends may not be something that most of us would welcome with open arms, after all, doesn’t everyone dream of owning their own home? But then, fluffy dreams do not belong in the world of hard, concrete real estate. In my opinion, these trends are very real and practical responses to rising home prices and falling affordability, and far more direct in approach than any regulatory action even the most enlightened authorities can possible envision. Bearing these possibilities in mind, one can project what kind of new homes we can expect to see in the market in future, and what types of properties will become increasingly rare and valuable in time to come.

Yup, I ‘also’ suspect shorter-lease tenure is definitely in the works — it’s one sure-fire way not to under-cut the political narrative [in terms of asset-enhancing deliverables/performance] and developers’ response to last year’s ’60-year Jalan Jurong Kechil’ test-case wasn’t half that bad right ?
I believe why there’s no follow-on roll-outs is becos ‘everyone’ [yours faithfully included] wants to see how that development ‘performs’ when launched.
[read : still sufficient time to announce more ‘cheaper’ 60-yr lease ‘solutions’ ahead of the next GE]
Anyway, I can’t understand the fixation with FH/999-Yr [Disclosure Note : I have one each FH & 99-yr]……. as a wise man once said : “In the long run ……. we are all …….. dead !”

Interesting what you wrote about lower home ownership …….. remembered telling my nieces & nephews a couple years back that they’ll be ‘living in New York’ soon — ie. “be prepared to be a tenant your whole life”.

We’re definitely not freehold-snobs either and, like you, hold a mix of freehold and leasehold. All about buying into value, eh? 🙂

I can definitely imagine Singapore becoming a New York of Asia, in the sense that we will have an increasing proportion of local tenants. Besides the critical issue of affordability, I think a greater proportion of young Singaporeans, having spent time working overseas and experienced being a tenant, have grown more open to the idea of not owning the home in which they live in, as compared to their parent’s generation. (And perhaps having tasted the freedom of living on their own, may also be less willing to live under their parent’s roofs rent-free once they return to Singapore? )

In any case, I still believe it’s better to be collecting rent than paying rent, so you have every reason to stay cheery! 🙂 Have a good weekend!